AGL Resources Reports Second Quarter 2012 Earnings
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- Diluted
earnings per share (EPS) of $0.28 versus $0.23 in second quarter 2011; excluding
Nicor merger-related expenses, adjusted diluted EPS of $0.30 for second
quarter 2012 compared to $0.33 for second quarter 2011
- First
half 2012 diluted EPS of $1.40 (GAAP)/$1.47 (non-GAAP), compared to
diluted EPS of $1.82 (GAAP)/$1.96 (non-GAAP) for the first half of 2011
- Warmer-than-normal
weather in the first half of 2012 resulted in an estimated $0.13 diluted
negative EPS effect for the distribution and retail segments ($0.02 impact
in second quarter 2012, $0.11 impact in first quarter 2012)
- 2012
financial results include Nicor's operations as the merger closed in
December 2011
ATLANTA, August
1, 2012 -- AGL Resources Inc. (NYSE: GAS) today reported second quarter net
income of $34 million, or $0.28 per basic and diluted share, compared to net
income of $18 million, or $0.23 per basic and diluted share, reported for the
same period last year. Excluding merger-related expenses of $0.02 per share in
2012 and $0.10 per share in 2011, adjusted EPS was $0.30 for the second quarter
of 2012 and $0.33 per diluted share for the second quarter of 2011.
For the first
six months of 2012, net income was $164 million, or $1.40 per basic and diluted
share, compared to net income of $142 million, or $1.83 per basic share and
$1.82 per diluted share for the same period in 2011. Excluding merger-related
expenses, adjusted EPS for the first half of 2012 was $1.47 per diluted share
compared to $1.96 per diluted share for the same period last year.
"On a
weather-normalized basis, our distribution businesses are performing well, and
our retail operations segment had a solid second quarter," said John W.
Somerhalder II, AGL Resources Chairman, President and Chief Executive Officer.
"While reported earnings at our wholesale services segment were lower
during the first half of the year, we ended the quarter with $47 million of
storage-related economic value, about half of which would be realized during
the second half of 2012 under our current withdrawal plan. Our midstream
operations and cargo shipping segments continue to face challenging market
conditions, though we are seeing modest signs of improvement in each.
Importantly, our shared-services model continues to drive cost savings
throughout our business, and we remain confident we can achieve our merger
savings targets."
2012
OPERATING SEGMENT RESULTS
Distribution
Operations
The
distribution operations segment, which consists of our seven utilities,
contributed EBIT of $100 million for the second quarter of 2012, an increase of
$26 million compared to EBIT of $74 million for the same period in 2011. The
increase was primarily the result of a $20 million contribution from the
addition of Nicor Gas.
Year-to-date
through June 30, 2012, the distribution operations segment contributed EBIT of
$294 million, an increase of $79 million compared to EBIT of $215 million for
the same period in 2011. The increase was primarily the result of a $71 million
contribution from the addition of Nicor Gas.
Retail
Operations
The retail
operations segment, which consists of SouthStar Energy Services and several
Nicor retail businesses that provide energy-related products and services,
contributed EBIT of $14 million for the second quarter of 2012, an increase of
$13 million compared to EBIT of $1 million for the same period in 2011. The
increase was primarily a result of the addition of Nicor's retail businesses
and increased margins resulting from reduced transportation and gas costs.
Year-to-date
through June 30, 2012, the retail operations segment contributed EBIT of $74
million, an increase of $5 million compared to EBIT of $69 million for the same
period in 2011. These results include the addition of the Nicor retail
businesses, partially offset by a $9 million year-over-year EBIT decline
resulting from the significantly warmer weather during the first half of 2012
as compared to the prior-year period.
Wholesale
Services
The wholesale
services segment, consisting primarily of Sequent Energy Management, reported
an EBIT loss of $9 million in the second quarter of 2012, compared to an EBIT
loss of $5 million for the same period in 2011. Storage hedge losses totaled $9
million during the quarter compared to storage hedge gains of $4 million in the
second quarter of 2011. Additionally, the wholesale services segment
experienced a $6 million decrease in commercial activity compared to the second
quarter of the prior year, primarily driven by lower optimization opportunities
and lower transportation spreads. These decreases were offset by higher
transportation hedge gains of $14 million ($18 million for second quarter 2012
as compared to $4 million last year). Hedge gains and losses are affected
primarily by changes in the price of natural gas and by changes in
transportation basis spreads in the period.
Year-to-date
through June 30, 2012, the wholesale services segment contributed EBIT of $10
million, compared to $28 million for the same period in 2011. Lower commercial
activity along with higher natural gas inventory lower-of-cost-or-market
(LOCOM) valuation adjustments, offset by higher storage and transportation
hedge gains, were the primary factors influencing year-over-year results.
As the price of
natural gas increased during the second quarter, Sequent recorded hedge losses
on its portfolio of storage assets, adding an equivalent value to the
storage-related rollout value locked-in at June 30, 2012. Further, higher
seasonal price differentials (summer 2012 to winter 2012 - 2013) during the
second quarter 2012 provided additional opportunities for Sequent to improve
its storage positions. Sequent's storage rollout schedule as of June 30, 2012
is $47 million on 55 billion cubic feet (Bcf) of natural gas inventory. This
compares to $11 million at the same point last year. The rollout value is
expected to be recognized as operating revenues in 2012 and 2013 when projected
withdrawals occur. This withdrawal schedule can change in response to changes
in market conditions, including changes in forward NYMEX natural gas prices,
and this value is expected to be partially offset by lower operating revenues
from Sequent's forward transportation portfolio as compared to last year.
Midstream
Operations
The midstream
operations segment, consisting primarily of our natural gas storage facilities
including Jefferson Island Storage and Hub, Golden Triangle Storage and Central
Valley Gas Storage, as well as Magnolia pipeline contributed EBIT of $2 million
in the second quarter of 2012, which is consistent with the same period in
2011.
Year-to-date
through June 30, 2012, the midstream operations segment contributed EBIT of $5
million, an increase of $1 million from the same period in 2011. The year-to-year
improvement is due primarily to hedge gains, partially offset by inventory
valuation LOCOM at Central Valley Gas Storage for volumes of natural gas
related to bringing the facility into service.
Cargo
Shipping
Our cargo
shipping segment consists primarily of Tropical Shipping, a containerized cargo
shipping company serving the Bahamas and Caribbean regions, and Seven Seas, a
domestic cargo insurance company. This segment reported an EBIT loss of $1
million in the second quarter of 2012, with a breakeven level of EBIT year to
date through June 30, 2012.
INTEREST
EXPENSE AND INCOME TAXES
Interest
expense for the second quarter of 2012 was $45 million, an increase of $13
million from the second quarter of 2011. The increase resulted from higher average
debt outstanding, primarily the result of the additional long-term debt issued
during 2011 in connection with the Nicor merger and the additional debt assumed
following the closing of the merger transaction. Interest expense year-to-date
2012 was $92 million, an increase of $31 million compared to the prior year due
to the same factors that influenced the second quarter.
Income taxes
for the second quarter of 2012 were $20 million, a $9 million increase compared
to the second quarter of 2011. Year-to-date income taxes through June 30, 2012
were $100 million, $13 million higher than the same period in 2011. The
increase for both periods was due to higher consolidated earnings for the
quarter relative to the prior year due to the addition of Nicor's businesses.
2012
EARNINGS OUTLOOK
AGL Resources
provides earnings per share guidance estimates based on normal weather, among
other assumptions. The historically warm weather experienced during the first
half of 2012 may lead to reported EPS results for the full year that are below
our previously indicated guidance range of $2.80 to $2.95 per diluted share,
which assumed normal weather. However, we are seeing a number of positive
trends, particularly related to managing controllable expenses, achieving
merger savings targets and generating incremental economic value at
Sequent.
Unanticipated
changes in these events or other circumstances could materially impact
earnings, and could result in earnings for 2012 significantly above or below
this outlook. Factors that could cause such changes are described below in
Forward-Looking Statements and in other company documents on file with the
Securities and Exchange Commission.
EARNINGS
CONFERENCE CALL/WEBCAST
AGL Resources
will hold a conference call to discuss its second quarter 2012 results on
August 1 at 9 a.m. Eastern Daylight Savings Time. The conference call will be
webcast, and can be accessed via the Investor Relations section of the
company's Web site (www.aglresources.com), or by dialing 866.831.6291 if
calling from the U.S., or 617.213.8860 if dialing from outside the U.S.
(Passcode: 90617866). A replay of the conference call will be available by
dialing 888.286.8010 in the United States or 617.801.6888 outside the U.S.
(Passcode: 18522327). A replay of the call also will be available on the
Investor Relations section of the company's Web site for seven days following
the call.
About
AGL Resources
AGL Resources
(NYSE: GAS) is an Atlanta-based energy services holding company with operations
in natural gas distribution, retail operations, wholesale services, midstream
operations and cargo shipping. As the nation's largest natural gas-only
distributor based on customer count, AGL Resources serves approximately 4.5
million utility customers through its regulated distribution subsidiaries in
seven states. The company also serves more than one million retail customers
through its SouthStar Energy Services joint venture and Nicor National, which
market natural gas and related home services. Other non-utility businesses
include asset management for natural gas wholesale customers through Sequent
Energy Management, ownership and operation of natural gas storage facilities,
and ownership of Tropical Shipping, one of the largest containerized cargo
carriers serving the Bahamas and Caribbean regions. AGL Resources is a member
of the S&P 500 Index. For more information, visit www.aglresources.com.
Forward-Looking
Statements
Certain
expectations and projections regarding our future performance referenced in
this press release, in other reports or statements we file with the SEC or
otherwise release to the public, and on our website, are forward-looking
statements. Senior officers and other employees may also make verbal statements
to analysts, investors, regulators, the media and others that are
forward-looking. Forward-looking statements involve matters that are not
historical facts, such as statements regarding our future operations,
prospects, strategies, financial condition, economic performance (including
growth and earnings), industry conditions and demand for our products and
services. Because these statements involve anticipated events or conditions,
forward-looking statements often include words such as "anticipate,"
"assume," "believe," "can," "could,"
"estimate," "expect," "forecast,"
"future," "goal," "indicate," "intend,"
"may," "outlook," "plan," "potential,"
"predict," "project," "seek," "should,"
"target," "would," or similar expressions. Forward-looking
statements contained in this press release include, without limitation, the
quote from John W. Somerhalder II, our expected storage-related economic value
and projected storage withdrawal schedule, our expected forward transportation
portfolio operating revenues, our expected merger-related synergies in 2012,
and our 2012 earnings outlook and related expectations and assumptions.
Such events,
risks and uncertainties include, but are not limited to, changes in price,
supply and demand for natural gas and related products; the impact of changes
in state and federal legislation and regulation including changes related to
climate change; actions taken by government agencies on rates and other
matters; concentration of credit risk; utility and energy industry
consolidation; the impact on cost and timeliness of construction projects by
government and other approvals, development project delays, adequacy of supply
of diversified vendors, unexpected change in project costs, including the cost
of funds to finance these projects; the impact of acquisitions and
divestitures, including the Nicor merger; the limits on natural gas pipeline
capacity; direct or indirect effects on our business, financial condition or liquidity
resulting from a change in our credit ratings or the credit ratings of our
counterparties or competitors; interest rate fluctuations; financial market
conditions, including disruptions in the capital markets and lending
environment and the current economic uncertainty; general economic conditions;
uncertainties about environmental issues and the related impact of such issues;
the impact of changes in weather, including climate change, on the
temperature-sensitive portions of our business; the impact of natural disasters
such as hurricanes on the supply and price of natural gas; the outcome of
litigation; acts of war or terrorism; and other factors which are provided in
detail in our filings with the Securities and Exchange Commission, which we incorporate
by reference in this press release. Forward-looking statements are only
as of the date they are made, and we do not undertake to update these
statements to reflect subsequent changes.
Supplemental Information
Company management evaluates segment financial performance based
on operating margin and earnings before interest and taxes (EBIT), which
include the effects of corporate expense allocations. EBIT is a non-GAAP
(accounting principles generally accepted in the United States of America)
financial measure that includes operating income and other income and expenses.
Items that are not included in EBIT are income taxes and financing costs,
including debt and interest expense, each of which the company evaluates on a
consolidated basis. The company believes EBIT is a useful measurement of
its performance because it provides information that can be used to evaluate
the effectiveness of its businesses from an operational perspective, exclusive
of the costs to finance those activities and exclusive of income taxes, neither
of which is directly relevant to the efficiency of those operations.
Operating margin is a non-GAAP measure calculated as operating
revenues minus cost of goods sold and revenue taxes, excluding operation and
maintenance expense, depreciation and amortization, certain taxes other than
income taxes, Nicor merger expenses and gains or losses on the sale of assets,
if any. These items are included in the company's calculation of operating
income. The company believes operating margin is a better indicator than
operating revenues of the contribution resulting from customer growth, since
cost of gas and revenue taxes are generally passed directly through to
customers.
In addition, in this press release AGL Resources has presented a
non-GAAP measure of adjusted earnings per share (EPS), which excludes expenses
incurred with respect to the Nicor merger. As the company does not
routinely engage in transactions of the magnitude of the Nicor merger, and
consequently does not regularly incur transaction and integration-related
expenses of correlative size, the company believes presenting EPS excluding
Nicor merger-related expenses provides investors with an additional measure of
AGL Resources' core operating performance. AGL Resources also expects to record
certain merger-related expenses in 2012 and will exclude nonrecurring
integration-related expenses from its 2012 adjusted results. Examples of
such expenses related to the merger and integration are: employee severance,
relocation, consulting services, temporary labor and certain travel costs. We
also discuss the impact to diluted EPS due to warmer-than-normal weather in the
first half of 2012.
EBIT, operating margin and adjusted EPS should not be considered
as alternatives to, or more meaningful indicators of, the company's operating
performance than operating income, net income attributable to AGL Resources
Inc. or EPS as determined in accordance with GAAP. In addition, the company's
EBIT, operating margin and adjusted EPS may not be comparable to similarly
titled measures of another company.
Reconciliation of non-GAAP financial measures referenced in this
press release and otherwise in the earnings conference call and webcast is
attached to this press release and is available on the company's Web site at http://www.aglresources.com/
under the Investor Relations section.
AGL Resources
Inc.
Condensed Consolidated Statements of Income
(Unaudited)
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
In
millions, except per share amounts
|
2012
|
2011
|
Fav / (Unfav)
|
|
2012
|
2011
|
Fav / (Unfav)
|
Operating
revenues (include revenue taxes of $14 million and $55 million for the three
and six months in 2012).
|
$ 686
|
$
375
|
$ 311
|
|
$ 2,090
|
$ 1,253
|
$ 837
|
Operating
expenses
|
|
|
|
|
|
|
|
Cost
of goods sold
|
240
|
134
|
(106)
|
|
959
|
589
|
(370)
|
Operation
and maintenance
|
218
|
119
|
(99)
|
|
463
|
248
|
(215)
|
Depreciation
and amortization
|
102
|
42
|
(60)
|
|
206
|
83
|
(123)
|
Taxes
other than income taxes
|
32
|
12
|
(20)
|
|
96
|
25
|
(71)
|
Nicor
merger expenses (1)
|
3
|
8
|
5
|
|
13
|
10
|
(3)
|
Total
operating expenses
|
595
|
315
|
(280)
|
|
1,737
|
955
|
(782)
|
Operating
income
|
91
|
60
|
31
|
|
353
|
298
|
55
|
Other
income
|
9
|
2
|
7
|
|
13
|
3
|
10
|
Earnings
before interest and taxes
|
100
|
62
|
38
|
|
366
|
301
|
65
|
Interest
expense, net
|
45
|
32
|
(13)
|
|
92
|
61
|
(31)
|
Earnings
before income taxes
|
55
|
30
|
25
|
|
274
|
240
|
34
|
Income
tax expense
|
20
|
11
|
(9)
|
|
100
|
87
|
(13)
|
Net
income
|
35
|
19
|
16
|
|
174
|
153
|
21
|
Less
net income attributable to the noncontrolling interest
|
1
|
1
|
0
|
|
10
|
11
|
1
|
Net
income attributable to AGL Resources Inc.
|
$ 34
|
$
18
|
$ 16
|
|
$ 164
|
$ 142
|
$ 22
|
|
|
|
|
|
|
|
|
Earnings
per common share
|
|
|
|
|
|
|
|
Basic
|
$ 0.28
|
$ 0.23
|
$
0.05
|
|
$ 1.40
|
$ 1.83
|
$
(0.43)
|
Diluted
|
$ 0.28
|
$ 0.23
|
$
0.05
|
|
$ 1.40
|
$ 1.82
|
$
(0.42)
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding
|
|
|
|
|
|
|
|
Basic
|
116.9
|
77.9
|
(39.0)
|
|
116.8
|
77.8
|
(39.0)
|
Diluted
|
117.2
|
78.5
|
(38.7)
|
|
117.1
|
78.3
|
(38.8)
|
|
|
|
|
|
|
|
|
(1) Nicor merger expenses shown are
related to O&M expense. Adjusted earnings per share reflecting merger costs
for 2011 periods also include incremental debt issuance costs and interest
expense related to financing the cash portion of the purchase consideration in
advance of the merger closing date. For a more detailed explanation of merger
costs, please refer to Note 3 of the AGL Resources Form 10-Q as filed on
8/1/12.
AGL Resources
Inc.
EBIT Schedule
For the Three and Six Months Ended June 30, 2012 and 2011
(Unaudited)
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
In
millions, except per share amounts
|
2012
|
2011
|
Fav / (Unfav)
|
|
2012
|
2011
|
Fav / (Unfav)
|
Distributions
operations
|
$ 100
|
$
74
|
$
26
|
|
$
294
|
$
215
|
$
79
|
Retail
operations
|
14
|
1
|
13
|
|
74
|
69
|
5
|
Wholesale
services
|
(9)
|
(5)
|
(4)
|
|
10
|
28
|
(18)
|
Midstream
operations
|
2
|
2
|
0
|
|
5
|
4
|
1
|
Cargo
shipping
|
(1)
|
0
|
(1)
|
|
0
|
0
|
0
|
Corporate/other
|
(6)
|
(10)
|
4
|
|
(17)
|
(15)
|
(2)
|
Consolidated
EBIT
|
100
|
62
|
38
|
|
366
|
301
|
65
|
Interest
expenses, net
|
45
|
32
|
(13)
|
|
92
|
61
|
(31)
|
Income
tax expense
|
20
|
11
|
(9)
|
|
100
|
87
|
(13)
|
Net
income
|
35
|
19
|
16
|
|
174
|
153
|
21
|
Less
net income attributable to the noncontrolling interest
|
1
|
1
|
0
|
|
10
|
11
|
1
|
Net
income attributable to AGL Resources Inc.
|
$ 34
|
$ 18
|
$ 16
|
|
$ 164
|
$ 142
|
$ 22
|
|
|
|
|
|
|
|
|
Earnings
per common share
|
|
|
|
|
|
|
|
Basic
|
$ 0.28
|
$ 0.23
|
$
0.05
|
|
$
1.40
|
$ 1.83
|
$
(0.43)
|
Diluted
|
$ 0.28
|
$ 0.23
|
$
0.05
|
|
$
1.40
|
$ 1.82
|
$
(0.42)
|
AGL Resources
Inc.
Reconciliation of Operating Margin to Operating Revenues
(Unaudited)
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
In
millions
|
2012
|
2011
|
Fav / (Unfav)
|
|
2012
|
2011
|
Fav / (Unfav)
|
Operating
revenues
|
$
686
|
$
375
|
$
311
|
|
$2,090
|
$
1,253
|
$
837
|
Cost
of goods sold
|
(240)
|
(134)
|
(106)
|
|
(959)
|
(589)
|
(370)
|
Revenue
tax expense
|
(13)
|
0
|
(13)
|
|
(54)
|
0
|
(54)
|
Operating
margin
|
$
433
|
$241
|
$
192
|
|
$1,077
|
$
664
|
$
413
|
AGL Resources Inc.
Reconciliation of Earnings per Share to Adjusted Earnings per Share
and Impact of Weather Normalization
(Unaudited)
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Basic earnings per share - as reported
|
|
$ 0.28
|
|
$ 0.23
|
|
$ 1.40
|
|
$ 1.83
|
Transaction costs of Nicor merger (per share)
|
|
0.02
|
|
0.10
|
|
0.07
|
|
0.14
|
Basic earnings per share - as
adjusted
|
|
$ 0.30
|
|
$ 0.33
|
|
$ 1.47
|
|
$ 1.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Diluted earnings per share - as reported
|
|
$ 0.28
|
|
$ 0.23
|
|
$ 1.40
|
|
$ 1.82
|
Transaction
costs of Nicor merger (per share)
|
|
0.02
|
|
0.10
|
|
0.07
|
|
0.14
|
Diluted
earnings per share - as adjusted
|
|
$ 0.30
|
|
$ 0.33
|
|
$ 1.47
|
|
$ 1.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated AGL Resources
|
in
millions
|
Three months ended
June 30, 2012
|
Six months ended
June 30, 2012
|
Operating
Income
|
$91
|
$353
|
Other
income
|
9
|
13
|
EBIT
|
$100
|
$366
|
Impact
of weather normalization
|
4
|
25
|
EBIT
as adjusted
|
$104
|
$391
|
Impact
of weather normalization (net of tax)
|
$2
|
$15
|
Diluted
earnings per share impact - as adjusted
|
$0.02
|
$0.13
|